International Group Inc. had questioned for years a retirement bonus plan for top managers because it was funded by a private company at no cost to AIG and that may have violated good governance standards, AIG’s former CEO Maurice “Hank” Greenberg testified on Thursday.
Greenberg said that AIG and privately held Starr International had had a public-private partnership for 35 years, but it became strained over time as Greenberg’s relationship with AIG became more contentious because of an investigation into AIG’s accounting practices.
Greenberg, who grew AIG into the world’s largest insurer, was ousted from AIG in March 2005. He remained chairman of Starr, which held AIG stock. Until the U.S. government bailed out AIG last September, Starr was AIG’s largest shareholder.
The AIG shares that Starr held were given to AIG managers through the retirement bonus plan.
“It was unlikely that the board would want to continue the plan unless they controlled Starr International, which was intolerable in the view of (Starr) voting shareholders,” Greenberg testified before U.S. District Judge Jed Rakoff.
AIG contends that Starr had pledged to fund the compensation plan in perpetuity. Starr has said it always intended its assets for a charitable trust.
AIG sued Starr to reclaim proceeds of stock sales and wrest back another 185 million shares, with the intention of bringing funding for the retirement plan in-house .
Greenberg, 84, was questioned by AIG’s lawyer Ted Wells, who told the court that since 2005 Starr had reaped $4.3 billion from the sale of AIG stock.
Looking drawn during his third consecutive day of testimony, Greenberg said he had discussed the fate of the compensation scheme with AIG’s board. “The last year or two of my role at AIG it began to get more heated,” and likely the program would be terminated, he testified.
AIG, which lost its position as the world’s leading insurer after the U.S. government’s $180 billion bailout, has said that it would use any award from the trial to repay bailout debt.
Judge Rakoff ruled on Monday that investigations surrounding Greenberg’s ouster, the U.S. government’s bailout and controversial bonuses to AIG executives could not be raised in the trial because they were irrelevant to the case.
AIG is arguing that there was an oral contract to fund the deferred compensation scheme in perpetuity based on Greenberg’s speeches, interviews and meeting minutes in which he spoke of holding the shares for the benefit of “future generations.”
Under cross-examination on Thursday by his lawyer David Boies, Greenberg said there had been no mention of a trust or protection of any kind for AIG.
Greenberg, joined in court by his wife Corinne and two of his sons, Jeff and Lawrence Scott, is expected to take the stand again on Friday.
The case is: American International Group v Starr International Company Inc 05-6283 in U.S. District Court for the Southern District of New York (Manhattan).
(Reporting by Lilla Zuilll; Editing by Toni Reinhold)
Was this article valuable?
Here are more articles you may enjoy.